Blackstone is about to take a 54% loss on iconic Seattle office tower

[SEATTLE] Blackstone is selling the US Bank Center in Seattle for about US$280 million, less than half what it paid for the building seven years ago and the latest sign that commercial landlords are increasingly willing to swallow their losses and move on.  

Spear Street Capital, an office landlord with about US$4 billion in real estate, has agreed to buy the property, according to people with knowledge of the deal, which hasn’t closed and is contingent on the availability of financing.

The price drop – 54 per cent below what Blackstone paid for the 44-storey downtown tower in 2019 – illustrates the persistence of the pandemic-era decline in demand for office space, compounded by higher borrowing costs in the years that followed. Central business district office values have fallen 44 per cent on average in the past five years, according to analytics company MSCI. 

“We believe this sale is the most optimal outcome for our investors and all parties involved,” said a Blackstone spokesperson who asked not to be named because the deal hasn’t closed. “Fortunately, US traditional office represents less than 1.5 per cent of our portfolio, and we effectively wrote off this investment in 2023.”

Seattle is among the areas that have fared the worst, with a third of downtown offices still vacant at the end of March, brokerage CBRE reported. It stands in contrast with rising demand in the region more broadly, especially the area east of Seattle, where large tenants and artificial intelligence technology companies have been adding office space. 

Blackstone has also shifted its attention east of Seattle. Last year, it invested in nearby Bellevue, Washington, taking 40 per cent stakes in office properties leased to Meta Platforms, valuing the buildings at US$545 million. 

Blackstone paid US$612 million for the US Bank Center in 2019. The debt on the building was US$427.8 million, according to property records. Lenders, including Deutsche Bank and US Bank, were cooperating on the sale, which was managed by brokerage Eastdil Secured, Green Street News reported in January.

Deutsche Bank, US Bank and Spear Street declined to comment.

For decades, the tower has reflected Seattle’s evolving downtown economy. Built during the late 1980s, it once housed upscale stores, restaurants, a movie theater and a FAO Schwarz known for the giant bronze teddy bear outside its entrance. More recently, the owners renovated the building’s atrium into Cedar Hall, a food-and-gathering space aimed at bringing foot traffic to the downtown area after the pandemic.

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Blackstone also owns the Docusign building in downtown Seattle, which it refinanced last year. A lender on the Docusign building is marketing a US$82.3 million slice of the building’s US$388 million mortgage debt, according to an offering by Newmark Group. Blackstone is still making payments on the loan, according to the offering. BLOOMBERG